“I’ve washed my hands so many times now I can see the answers to a math test I took in 1978!” We’re going through a test of the financial system. I love it when politicians, or anyone, whine about the government being involved in the financial services sector, or housing finance. You’re telling me “private capital” has the strength to replace Freddie Mac and Fannie Mae, or the Federal Reserve, in this kind of environment? There is, of course, chatter about how about large banks or Agencies that have lent money to companies to finance their servicing portfolios. How’s that collateral? There’s also talk of husbands and wives together for more than eight hours at a time, with an expected baby boom in nine months. Organizers of April and May conferences rushing to book prime autumn time slots. Counterparty risk is once again rearing its ugly head: Texas Capital’s warehouse bank (with its unrelated exposure to the oil business) is “full” and not allowing refis. Appraisers nervous to go into houses, and owners nervous about having appraisers in their house. Virtual showings have increased. Policies and procedures implications go far beyond changing handshakes to fist or elbow bumps, and a sample of recent market-driven changes are below.
Lender Services and Products
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With the Coronavirus moving markets daily, and the 10-year T-note at 84 bps, the refinance activity is back and volume is soaring. Remember just two short months ago, however, we were at 1.95, the equity markets could not stop, and LOs were looking for things to chase. One thing has not changed, consumers are spending in the US, even if it is panic shopping, confidence has been up and construction lending is very active. Are you ready for this loan volume? CFSI Loan Management is a full-service construction risk mitigation company, helping lenders manage the construction process from beginning to end. “We help our lending partners to ensure that the contractor and project feasibility phase is set prior to loan approval and after loan funding we provide full service fund control (including lien releases) and a national inspection platform that allows our clients to ensure that the project is progressing on time and the percent complete is accurate for funding each draw. Lenders manage credit risk, CFSI manages construction risk. Let CFSI Loan Management help you lead your market with real estate agents, borrowers and builders with a construction loan program.” Please contact President Brian Mingham for information.
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Webinars and Training
In the wake of the many recent industry conference cancellations due to COVID-19, Maxwell has announced an innovative event to cultivate some of that conference energy with their three-day MAXOUT 2020 “Unconference”, which will take place March 23-25th. I’ll be keynoting a session titled, “2020: COVID-19, Low Rates, Recession?” on Wednesday and I’m excited to be a part of what's shaping up to be an amazing event. MAXOUT 2020 is 100% web-based and 100% FREE, and three lucky attendees will win a $500 Amazon Gift Card, $250 Amazon Gift Card, or $100 Amazon Gift Card. To check out the agenda, register for sessions, and partake in MAXOUT 2020, visit: www.himaxwell.com/maxout-2020
Calling all Operations Leaders and Executives: According to the Mortgage Bankers Association, total mortgage application activity jumped 55 percent just last week. To assist with capacity challenges and limited staff, XINNIX can train new operations and sales support talent FAST! Its solutions are on-demand and require as few as 10 days to complete, with no travel requirements. There are solutions for all your new talent needs, including Processors, Loan Officer Assistants, Call Center Sales, Retail Loan Officers, and Wholesale Account Executive positions. Schedule an appointment today or call 678-325-3500, to discover how XINNIX can help you source, train and assimilate new talent to your team, quickly.
Policy and Procedure Changes
Do lenders headquartered in hurricane-prone areas have “a leg up” on companies located elsewhere when it comes to disaster preparedness and contingency plans? Possibly. People are using this as a good reason to organize their home offices. Everyone is looking at their eNote and eVault capabilities. But what about those shippers that don’t have any choice to come into work: paper files are still alive and well.
Schools are shutting down temporarily everywhere. Attorneys and title companies are letting clients know that they will start having their non-closing employees work from home, and may shutdown their offices altogether much to the detriment of closing a loan. Can your county register deeds? Lenders and vendors are quite pleased when they can operate at almost full capacity even when working from home, but may also be faced with having to care for children that aren’t able to go to school.
Ken Perry with the Knowledge Coop sent, “This is most likely going to move us closer to E-Closings. If you think wire fraud and email breaches were bad, just wait until a bad guy can sign loan documents by webcam. I can order a driver’s license today that says Robert Chrisman, with accurate data, and has my face on it. HELOCs for all my hacker friends if we aren’t careful in the way we authenticate the borrower!”
The Property Records Industry Association (PRIA) maintains a list of counties that allow e-recording.
What about verbal verifications of employment? Of course, if a potential refi candidate just lost their job, despite saving money on their monthly payment, the lender is going to have a tough time meeting the Ability to Repay (ATR) rules.
Dave Green, Chairman & CEO of the StoneHill Group, wrote, “On a note for those in the mortgage QC world, we are required to send written reverifications per Agency HUS and VA guidelines, for all documents used to qualify for the loan. This requires letters, postage, postage paid return, etc., which may be hard to do for many QC companies to maintain security of non-public information. It is usually done in a secure office environment.”
Several very talented operations folks sent valuable notes. “FHA does require a verbal VOE within 10 days of closing. (2) Alternative Current Employment Documentation. If using alternative documentation, the Mortgagee must: obtain copies of the most recent pay stub that shows the Borrower’s year-to-date earnings; obtain copies of the original IRS W-2 forms from the previous two years; and document current employment by telephone, sign and date the verification documentation, and note the name, title, and telephone number of the person with whom employment was verified. Re-verification of employment must be completed within 10 days prior to the date of the Note. Verbal or electronic re-verification of employment is acceptable. Electronic re-verification employment data must be current within 30 days of the date of the verification.”
One well-known wholesaler wrote, “We’ll be publishing guidance on VVOEs soon similar to the guidance we follow when borrowers are employed during a government shutdown. I hear Freddie will be doing the same. I am not sure on Fannie, but we’ll use the same guidance for both. HUD requires 10 days prior to the note with some exceptions, so we’ll use the guidance on FHA loans sparingly.”
And from a medium-sized retail group: “Regarding the VVOE, FNMA and most Non-A jumbo lenders require this to happen before the note date. It goes without saying, delays getting docs out are imminent. FNMA states, ‘Lenders must obtain a verbal verification of employment (verbal VOE) for each borrower using employment or self-employment income to qualify. The verbal VOE must be obtained within 10 business days prior to the note date for employment income, and within 120 calendar days prior to the note date for self-employment income.’”
Sunday night’s Fed events (100 bps rate cut, $700 billion worth of Treasury and MBS purchases, full reinvestment of Fed paydowns with the removal of the $20 billion cap, the resumption of QE with the Desk buying at least $200 billion over the coming months due to the recent break down in price action with nominal spreads widening, and coordination with other central banks to reduce the cost of using dollar swap lines) helped the MBS market find some footing yesterday. Lower coupons outperforming by a point or more versus benchmark curves, and treasuries prices higher in what was a very volatile trade to open the week: the 10-year yield closed the day -22 bps to 0.73 percent. It would appear the Federal Reserve is now officially spent, as that was the last of its conventional monetary ammunition to counter the economic crisis triggered by the new coronavirus.
The Fed's decision, which was made in lieu of the March FOMC meeting, was followed by an intraday announcement of a $750 billion repurchase operation by the New York Fed. The Desk also wasted no time in supporting the MBS market with two FedTrade operations targeting up to $7.6 billion MBS. In the first, they purchased $5.09 billion UMBS30 2.5 percent through 3.5 percent and then $2.5 billion GNII 2.5 percent through 3.5 percent ahead of the settlement close.
The decision by the Fed was a move that was intended to stabilize and likely lower mortgage rates after they moved sharply higher last week. Instead, investors saw it as evidence the central bank is almost out of bullets. The S&P index experienced its steepest drop since 1987 yesterday, and could soon be lower than when President Trump took office.
(If you are looking for an indicator of where economic data goes from here, it is not so optimistic. China released disastrous economic data yesterday, which shows the effect of its large-scale lockdown from two months ago. Industrial production for the combined months of January and February fell 13.5 percent from a year earlier, retail sales plunged 20.5 percent from a year earlier (both were expected to post increases), and February Fixed Asset Investment contracted 24.5 percent from the year prior when it was expected to increase. February House Prices missed expectations and the unemployment rate jumped.)
Today’s calendar is already underway with February retail sales (-.4 percent, -.5 percent ex-auto). Later today brings same store sales from Redbook for the week ending March 14, February Industrial production and capacity utilization, January business inventories, JOLTS job openings for January and the March NAHB Housing Market Index. The Desk will conduct two MBS FedTrade operations targeting buying $1.1 billion and then $2.519. We begin today with Agency MBS prices worse .125 and the 10-year yielding .80 percent.
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